FOURTH SUTH EASTERN EUROPE
CORPORATE GOVERNANCE ROUNDTABLE
6-7 March 2003, Sarajevo
LEGAL FRAMEWORK FOR CORPORATE
GOVERNANCE IN BOSNIA AND HERZEGOVINA
A BRIEF OVERVIEW
Mr. Mihret Dizdar, Company and Securities Law Consultant
Revicon LLC, Business Consulting Services, Sarajevo
BACKGROUND
The Dayton Peace Accord (1995)
• The state of Bosnia and Herzegovina
• Two constitutional entities:
Federation of Bosnia and Herzegovina (FBiH)
Republic of Srpska (RS)
• Single administrative unit of local self-government:
Brcko District
BASIC LEGAL FRAMEWORK
• FBiH Law on Business Companies of 1999 (LBC)
• RS Law on Enterprises of 1998 (LoE)
• Entity-level laws:
securities, accounting and audit,
contracts, company register, etc.
• Entity-level regulatory and market institutions:
securities commission, securities registrar, securities
exchange
CORPORATE GOVERNANCE STRUCTURES
FBiH joint stock company
• The shareholders’ meeting elects the supervisory board and the audit
committee
• The supervisory board appoints the management: chief executive
named as director, and executive directors, occasionally
RS joint stock company (over 50 shareholders and/or 100 employees)
• The shareholders’ meeting elects the management board and the
supervisory board
• The management board appoints the chief executive named as director,
and the board of executive directors, occasionally
• FBiH supervisory board
• FBiH audit committee
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RS management board
RS supervisory board
FINANCIAL REPORTING, AUDIT
AND DISCLOSURE
Supervising the process of accounting and financial reporting and
auditing of financial statements
• FBiH:
• RS:
the audit committee
the supervisory board
Elected by shareholders
Composed entirely separated from FBiH supervisory board, i.e. RS
management board
•
“Public company”
Any issuer of securities issued through public offer and/or traded on a
securities exchange or other regulated public market
An independent outside audit and disclosure of financial statements
CHANGES AND IMPROVEMENTS
• RS Law on Enterprises – enacted, September 2002
• FBiH Law on Business Companies - proposed, October 2002
• The initiative and basis:
– Action Plan for the removal of administrative barriers to
investments
– FIAS Report
• Forum on Corporate Governance, May 2002
– A public-private sector dialogue and partnership to enhance the
business environment in BiH
– www.korporativno-upravljanje.ba
RS LAW ON ENTERPRISES CHANGES ENACTED
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Company founding act –The company type, duration and share capital
Company governing bodies – Over 50 shareholders and/or 100 employees:
the management board and the supervisory board; the chief executive and the
board of executive directors, occasionally
Company register – Data and documents to be entered and/or filed with the
court register; the third party protection where the data inaccurately published
Business letters - The contents of business letters delivered to third parties
Founding cash contributions – Raised to 50,000 KM and to 100,000 KM
Share nominal value - Reduced from 5 KM to 1 KM
Shareholder book - Central Securities Registrar
Profit distribution – The conditions complied with the Second EU Directive
Quorum – Over 50% for the first convening, allowing votes to be mailed;
quorum is not required for the reconvened shareholder meeting
Proxy - Certified by the relevant state authority or by the company
Company reorganization – Compliance with the Third and the Sixth EU
Directive
Creating corporate governance standards - The Securities Commission
FBiH BUSINESS COMPANIES LAW CHANGES PROPOSED
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Company register and business letters – To comply with the First EU
Directive, international practices and local experiences
Company reorganization –The Third and the Sixth EU Directive
Payment for shares by transfer of items and/or rights – Should be allowed
for shares issued through private placement, including debt-equity swap
Pre-emptive right to a new share issue – Should be appllied to all issues
Subscribed capital decrease by the withdrawal of own shares –
Shareholder meeting decision for all cases should be required
Share class – To clarify interdependence of the nominal value and rights
attached, as well as possibility and characteristics of shares of different classes
Shareholder book - Maintained only electronically at the Securities Registrar
Quorum – To reduce at 30% for the first and 10% for the reconvened meeting
Proxy - To remove the shareholder`s signature certification and allow a proxy
and voting ballots delivered by mail, fax or e-mail, all subject to the SEC regs
LBC comprehensive application – To bind companies with partial or total
state capital still remaining not to wait for privatization completion, but to
comply with the LBC provisions within reasonable shorter time period
CORPORATE GOVERNANCE IN COMPLEMENTARY LAWS
• Forum on Corporate Governance, October 2002
Comments and recommendations:
www.korporativno-upravljanje.ba
• The term “capital” in laws and practice of BiH
• Financial reporting and corporate income taxation
• Accounting and audit
• Corporate governance in "special" laws